STOCK PURCHASE AGREEMENT
Exhibit
10.41
THIS
STOCK PURCHASE AGREEMENT is entered into as of June 29, 2007, by and among
BPO
Management Services, Inc., a Delaware corporation (the “Buyer”),
Human
Resource Micro-Systems, Inc., a California corporation (the “Target”
or
the
“Company”),
and
Xxxxxx X. Xxxx and Xxxxxxx X. Xxxx, as trustees of the Xxxxxx X. and Xxxxxxx
X.
Xxxx Revocable Trust dated April 24, 2003 (collectively, the “Sellers”).
The
Company, the Buyer and the Sellers are referred to collectively herein as
the
“Parties.”
The
Parties hereto agree as follows:
A.
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The
Sellers own all of the outstanding capital stock of the Target.
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B.
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Subject
to the terms and conditions of this Agreement, the Buyer will purchase
from the Sellers, and the Sellers will sell to the Buyer, all of
the
outstanding capital stock of the Target in return for cash and
the
issuance of shares of Buyer Stock, as defined
below.
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1. Definitions.
“Accredited
Investor”
has
the
meaning set forth in Regulation D promulgated under the Securities
Act.
“Adverse
Consequences”
means
all actions, suits, proceedings, hearings, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court costs
and
reasonable attorneys’ fees and expenses
provided, however,
that in
no event shall Adverse Consequences mean or include consequential, indirect,
special or punitive damages.
“Affiliate”
has
the
meaning set forth in Rule 12b-2 of the regulations promulgated under the
Securities Exchange Act.
“Buyer”
has
the
meaning set forth in the preface above.
“Buyer
Stock”
means
the stock issued by the Buyer as provided for in Section 2(b)
herein.
“Closing”
has
the
meaning set forth in Section 2(c) below.
“Closing
Date”
has
the
meaning set forth in Section 2(c) below.
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“Code”
means
the Internal Revenue Code of 1986, as amended.
“Confidential
Information”
means
any proprietary information concerning the businesses and affairs of the
Target
that is not already generally available to the public or in the human resources
information systems industry; for clarification, “Confidential Information”
shall not include “know-how” that is useful in the human resources information
systems industry but either
(i) is
not
proprietary to Target or (ii)
does
not
contain
any
confidential information of Target.
“Consulting
Agreement”
means
the Consulting Agreement in the form attached hereto as Exhibit
A.
“Disclosure
Schedule”
means
the
disclosure schedule delivered by the Sellers to the Buyer on the date
hereof.
“Employee
Benefit Plan”
means
any “employee benefit plan” (as such term is defined in ERISA §3(3)) and any
other material employee benefit plan, program or arrangement of any
kind.
“Employee
Pension Benefit Plan”
has
the
meaning set forth in ERISA §3(2).
“Employee
Welfare Benefit Plan”
has
the
meaning set forth in ERISA §3(1).
“Environmental,
Health, and Safety Requirements”
shall
mean all federal, state, local and foreign statutes, regulations, ordinances
and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and
all
common law concerning public health and safety, worker health and safety,
and
pollution or protection of the environment, including without limitation
all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of
any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products
or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation, each
as
amended and as now or hereafter in effect.
“Escrow
Agreement”
means
the Escrow Agreement in the form attached hereto as Exhibit
C.
“Excluded
Loans”
means
all loans owed to Sellers and any former shareholders of Target, all accrued
bonuses and shareholder distributions payable to Sellers and all other
obligations owed to any Sellers or any other shareholders of Target (but
not
including standard payroll payable in the Ordinary Course of Business).
“Financial
Statements”
has the
meaning set forth in Section 4(d) below.
“Indemnified
Party”
has
the
meaning set forth in Section 8(e) below.
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“Indemnifying
Party”
has
the
meaning set forth in Section 8(e) below.
“Intellectual
Property”
means
(a) all inventions (whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto, and all patents, patent
applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names,
and
corporate names, together with all translations, adaptations, derivations,
and
combinations thereof and including all goodwill associated therewith, and
all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations,
and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets
and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes
and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing
plans
and proposals), (f) all computer software, including, without limitation,
all
source code and data and related documentation, (g) all other proprietary
rights, and (h) all copies and tangible embodiments thereof (in whatever
form or
medium).
“Knowledge”
means
actual knowledge.
“Liability”
means
any liability (whether known or unknown, whether asserted or unasserted,
whether
absolute or contingent, whether accrued or unaccrued, whether liquidated
or
unliquidated, and whether due or to become due), including any liability
for
Taxes.
“Material
Adverse Effect”
means,
with respect to the Target, a material adverse effect on the business, assets
(including intangible assets), financial condition, or results of operations
of
the Target that is in excess of $25,000; provided, however, that “Material
Adverse Effect” shall exclude the effects of (i) economic factors affecting the
economy as a whole or the enterprise software industry generally, (ii) the
announcement or pendency of the transactions contemplated by this Agreement,
and
(iii) Target’s and Sellers’ compliance with the terms of, or taking any action
contemplated or permitted by, this Agreement.
“Most
Recent Balance Sheet”
means
the balance sheet contained within the Most Recent Financial
Statements.
“Most
Recent Financial Statements”
has
the
meaning set forth in Section 4(d) below.
“Most
Recent Fiscal Month End”
means
May
31,
2007.
“Ordinary
Course of Business”
means
the ordinary course of the Company’s business consistent with the Company’s past
custom and practice.
“Party”
has
the
meaning set forth in the preface above.
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“Person”
means
an individual, a partnership, a corporation, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization, or a
governmental entity (or any department, agency, or political subdivision
thereof).
“Prohibited
Transaction”
has the
meaning set forth in ERISA §406 and Code §4975.
“Purchase
Price”
has
the
meaning set forth in Section 2(b) below.
“Registration
Rights Agreement”
means
the Registration Rights Agreement in the form attached hereto as Exhibit
B.
“Reportable
Event”
has the
meaning set forth in ERISA §4043.
“Securities
Act”
means
the Securities Act of 1933, as amended.
“Securities
Exchange Act”
means
the Securities Exchange Act of 1934, as amended.
“Security
Interest”
means
any mortgage, pledge, lien, encumbrance, charge, or other security interest,
other than (a) mechanic’s, materialmen’s, and similar liens, (b) liens for Taxes
not yet due and payable or for Taxes that the taxpayer is contesting in good
faith through appropriate proceedings, (c) purchase money liens and liens
securing rental payments under capital lease arrangements, and (d) other
liens
arising in the Ordinary Course of Business and not incurred in connection
with
the borrowing of money.
“Seller”
or
“Sellers”
has
the
meaning set forth in the preface above.
“Target”
has
the
meaning set forth in the preface above.
“Target
Shares”
means
the shares of the common stock of the Target.
“Tax”
means
any federal, state, provincial, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code §59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
“Tax
Return”
means
any return, declaration, report, claim for refund, or information return
or
statement relating to Taxes, including any schedule or attachment thereto,
and
including any amendment thereof.
2. Purchase
and Sale of Target Shares.
(a) Basic
Transaction.
On and
subject to the terms and conditions of this Agreement, the Buyer agrees to
purchase from each of the Sellers, and each of the Sellers agrees to sell
to the
Buyer, all of the Target Shares at the Closing, for the consideration specified
below in this Section 2.
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(b) Purchase
Price.
The
Buyer agrees to pay to the Sellers the following consideration for the sale
of
the Target Shares (the “Purchase
Price”):
(i)
at the Closing, One Million One Hundred Thousand Dollars ($1,100,000), payable
by wire transfer or delivery of other immediately available funds (the
“Closing
Payment”);
plus
(ii) Five Hundred Thousand Dollars ($500,000), due and payable by wire transfer
or delivery of other immediately available funds on the first anniversary
of the
Closing (the “Deferred
Payment”);
plus
(iii) at the Closing, issuance of and delivery to Sellers of a stock certificate
for Three Hundred Eighty-Four Thousand Nine Hundred Sixty-Eight (384,968)
shares
of restricted common stock of Buyer (the “Buyer
Stock”),
which
the parties agree have an aggregate value of $400,000, based on the
volume-weighted average of the OTC Bulletin Board closing bid price of the
Buyer’s common stock, par value $0.01 per share (the “Common
Stock”),
during the ten (10) consecutive trading days immediately preceding, but not
including, the Closing Date. The
Purchase Price and the Closing
Payment
shall be
reduced, dollar for dollar, to the extent that the Closing
Net
Equity of the Target is less than $80,000,
and
the Purchase Price and the Closing Payment shall be increased, dollar for
dollar, to the extent that the Closing Net Equity of the Target is more than
$140,000. By way of clarification, notwithstanding any provision in this
Agreement to the contrary, there shall be no increase in the Purchase Price
unless the Closing Net Equity of the Target exceeds $140,000 and in such
case
such increase shall only be the amount that is in excess of $140,000 (the
“Limitations”).
“Closing
Net Equity” means, determined
as
of the
Closing and using accounting principles consistent with those used in preparing
the Financial Statements,
the
positive difference of
(i) the
sum
of the
Target’s
cash
and
cash
equivalents,
accounts
receivable,
inventory and prepaid expenses,
less
(ii) the
sum of the Target’s
deferred
maintenance, accounts payable, accrued payroll and payroll related
expenses,
loans
payable
and
all
other liabilities
except
for Excluded
Loans. The determination of Closing Net Equity for purposes of payment of
the
Closing Payment at the Closing shall be based upon Target’s estimated balance
sheet as of the Closing, as delivered to Buyer by Target no later than the
business day immediately preceding the Closing Date. No later than ten (10)
days
after the Closing, the Sellers shall deliver to Buyer a final balance sheet
of
Target as of the Closing (the “Updated
Balance Sheet”).
If
the final balance sheet reflects any change in Closing Net Equity, then,
within
three (3) business days after the delivery of the final balance sheet, the
parties shall “true up” the Closing Payment as follows: subject to the
Limitations described above, if the Closing Net Equity is greater on the
final
balance sheet than on the estimated balance sheet, Buyer shall pay the Sellers
the difference; and if the Closing Net Equity is lower on the final balance
sheet than on the estimated balance sheet, the Sellers shall pay Buyer the
difference.
No
later
than the business day prior to the Closing, the Sellers may request in writing
that, at the Closing, Buyer pay a specific dollar amount from the Closing
Payment as a contribution to the Target’s capital, in order to facilitate
Target’s payment of obligations to be satisfied as of the Closing, including
without limitation Excluded Loans. If the Sellers make such a request, then
Buyer will make such capital contribution by wire transfer or delivery of
other
immediately available funds to Target, and the Closing Payment and the Purchase
Price shall be reduced in the amount of the capital contribution.
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At
the
Closing, Buyer shall deposit cash in the amount of the Deferred Payment into
an
interest-bearing escrow (“Escrow”)
to be
held by U.S. Bank National Association (“Escrow
Holder”)
located in Los Angeles, California. All interest accruing in such Escrow
shall
be for the benefit of Buyer. Such Deferred Payment shall be held by Escrow
Holder until the Deferred Payment is otherwise due hereunder, subject to
Buyer’s
right to offset and reduce the Deferred Payment in accordance with Section
8(h)
of this Agreement. The Escrow shall be governed by the Escrow Agreement,
which
the Buyer and Seller shall execute at the Closing, and the Buyer shall cause
Escrow Holder to execute at the Closing.
(c) The
Closing.
The
closing of the transactions contemplated by this Agreement (the “Closing”)
shall
take place upon the execution of this Agreement by the parties
hereto.
The
actual date and time of the Closing shall be the “Closing
Date.”
At
the
Closing, the
Parties shall deliver the items described in Section 7 below.
3. Representations
and Warranties Concerning the Transaction.
(a) Representations
and Warranties of the Sellers and the Company.
Each of
the Sellers and the Company represent and warrant to the Buyer that the
statements contained in this Section 3(a) are correct and complete as of
the date of this Agreement,
except
as set forth in the Disclosure Schedule.
(i) Authorization
of Transaction.
The
Sellers and the Company each have full power and authority, and the Company
has
full corporate power and authority, to execute and deliver this Agreement
and to
perform his, her or its obligations hereunder. The execution, delivery and
performance of this Agreement and the Exhibits hereto have been authorized
by
all necessary action on behalf of the Company, including its board of directors
and shareholders,
and the
Company has delivered to Buyer reasonably satisfactory evidence
thereof.
This
Agreement and
the
Exhibits constitutes
the
valid
and legally binding obligation of the Sellers and the Company, enforceable
in
accordance with their terms and conditions, except the enforceability of
the
Agreement and the Exhibits (A) may be subject to or limited by bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
relating to or affecting the rights of creditors and (B) is subject to general
principles of equity (including the possibility of unavailability of specific
performance or injunctive relief), regardless of whether considered in a
proceeding in equity or at law.
(ii) Noncontravention.
Except
as disclosed in Section 3(a)(ii) of the Disclosure Schedule, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or
other
restriction of any government, governmental agency, or court to which the
Sellers or Company is subject or, any provision of the Company’s articles of
incorporation or bylaws, or (B) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right
to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which
the Sellers or Company is a party or by which he, she or it is bound or to
which
any of his, her or its assets is subject. The Sellers and the Company do
not
need to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for
the
Parties to consummate the transactions contemplated by this
Agreement.
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(iii) Brokers’
Fees.
The
Sellers and the Company have not engaged any broker, finder or similar agent,
other than Corum Group Ltd. (represented by Xxxx Xxxxxx) (“Xxxxx”),
in
connection with the transactions contemplated by this Agreement. The Sellers
and
the Company are not obligated to pay any commissions or brokers’ fees, other
than the transaction fee owing to Corum, in connection with the transactions
contemplated by this Agreement. The Buyer will not become responsible for
any
such fees or commissions based upon the actions or omissions of Sellers,
the
Company or their respective representatives.
(iv) Investment.
The
Sellers (A) understand that the Buyer Stock has not been and, except as
contemplated by the Registration Rights Agreement, will not be registered
under
the Securities Act, or any other securities laws or under any state or
provincial securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering,
(B) are acquiring the Buyer Stock solely for their own account for investment
purposes, and not with a view to the distribution thereof, (C) are sophisticated
investors with knowledge and experience in business and financial matters,
(D)
have received certain information concerning the Buyer, and have had the
opportunity to obtain additional information as desired in order to evaluate
the
merits and the risks inherent in holding the Buyer Stock, (E) are able to
bear
the economic risk and lack of liquidity inherent in holding the Buyer Stock;
and
(F) are Accredited Investors.
(v) Target
Shares.
Sellers
hold of record and own beneficially all of the Target Shares, free and clear
of
any restrictions on transfer (other than any restrictions under the Securities
Act and state securities laws, Taxes, Security Interests, options, warrants,
purchase rights, contracts, commitments, equities, claims, and demands).
No
Seller is a party to any option, warrant, purchase right, or other contract
or
commitment that could require such Seller to sell, transfer, or otherwise
dispose of any capital stock of the Target (other than this Agreement). No
Seller is a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the
Target.
(vi) Sellers’
Investigation and Due Diligence.
With
respect to the purchase of the Buyer Stock by the Sellers as provided for
in
this Agreement, each of the Sellers:
(A)
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are
knowledgeable and sophisticated investors experienced in business
matters;
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(B)
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are
not relying on any oral representation of any Buyer or Buyer’s agents,
attorneys or certified public accountants;
and
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(C)
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subject
to Buyer’s warranties, representations and indemnity obligations set forth
in this Agreement (which shall supersede this Section 3(a)(vi)(C)
in the
event of any conflict), shall rely upon their own investigation,
analysis
and due diligence concerning Buyer and Buyer’s business.
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(b) Representations
and Warranties of the Buyer.
The
Buyer represents and warrants to the Sellers that the statements contained
in
this Section 3(b) are correct and complete as of the date of this
Agreement.
(i) Authorization
of Transaction.
The
Buyer has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement and
the
Exhibits hereto have been authorized by all necessary action on behalf of
the
Buyer, including its board of directors,
and the
Buyer has delivered to Sellers reasonably satisfactory evidence
thereof.
This
Agreement and the Exhibits constitute the valid and legally binding obligation
of the Buyer, enforceable in accordance with their terms and conditions.
Except
as provided for in the Registration
Rights
Agreement, and except as required under the
Securities Act and applicable
regulations thereunder, the Buyer need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or
governmental agency in order to consummate the transactions contemplated
by this
Agreement.
(ii) Noncontravention.
Neither
the execution and the delivery of this Agreement, nor the consummation of
the
transactions contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or
other
restriction of any government, governmental agency, or court to which the
Buyer
is subject or any provision of its certificate of incorporation or bylaws,
or
(B) conflict with, result in a breach of, constitute a default under, result
in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Buyer is a party or
by
which it is bound or to which any of its assets is subject.
(iii) Brokers’
Fees.
The
Buyer has not engaged any broker, finder or similar agent in connection with
the
transactions contemplated by this Agreement. The Buyer is not obligated to
pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. Neither Sellers nor the Company
will become responsible for any such fees or commissions based upon the actions
or omissions of Buyer or its representatives.
(iv) Investment.
The
Buyer (A) understands that the Target Shares have not been, and will not
be,
registered under the Securities Act, or under any state securities laws,
and are
being offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (B) is acquiring the Target
Shares solely for its own account for investment purposes, and not with a
view
to the distribution thereof, (C) is a sophisticated investor with knowledge
and
experience in business and financial matters, (D) has received certain
information concerning the Sellers and the Target and has had the opportunity
to
obtain additional information as desired in order to evaluate the merits
and the
risks inherent in holding the Target Shares, (E) is able to bear the economic
risk and lack of liquidity inherent in holding the Target Shares and (F)
is an
Accredited Investor.
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(v) Buyer’s
Investigation and Due Diligence.
With
respect to the purchase of the Target Shares by the Buyer as provided for
in
this Agreement, Buyer:
(A) is
a
knowledgeable and sophisticated investor experienced in business
matters;
(B) is
not
relying on any oral representation of any Seller or any of Sellers’ or Target’s
agents, attorneys or certified public accountants; and
(C) subject
to Sellers’ warranties, representations and indemnity obligations set forth in
this Agreement (which shall supersede this Section 3(b)(v)(C) in the event
of
any conflict), shall rely upon its own investigation, analysis and due diligence
concerning Seller and Seller’s business.
4. Representations
and Warranties Concerning the Target.
The
Sellers and the Company each represent and warrant to the Buyer that the
statements contained in this Section 4 are correct and complete as of the
date
of this Agreement (except as to the statements as to the Updated Balance
Sheet
in Section 4(d), which shall be correct and complete as of the date the Updated
Balance Sheet is delivered), except as set forth in the Disclosure
Schedule.
(a) Organization,
Qualification, and Corporate Power.
The
Target is a corporation duly organized, validly existing, and in good standing
under the laws of the State of California. The Target is not qualified to
conduct business as a foreign corporation under the laws of any other
jurisdiction.
There
is no other jurisdiction in which the Target is required to qualify to conduct
business as a foreign corporation in which Target’s failure to so qualify has a
Material Adverse
Effect
on the Company. The Target has full corporate power and authority and all
licenses, permits, and authorizations necessary to carry on the businesses
in
which it is engaged and to own and use the properties owned and used by it.
Section 4(a) of the Disclosure Schedule lists the directors and officers
of the
Target. Target has delivered to the Buyer correct and complete copies of
the
Target’s articles of incorporation and bylaws (as amended to date). The minute
books (containing the records of meetings of the shareholders, the board
of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of Target are correct and complete in all
material respects. Target is not in default under or in violation of any
provision of its articles of incorporation or bylaws.
(b) Capitalization.
The
entire authorized capital stock of the Target consists of 50,000 common shares,
and no Target Shares are held in treasury. There are 50,000 Target Shares
issued
and outstanding, all of which are held of record by Sellers, have been duly
authorized, and are validly issued, fully paid, and nonassessable. There
are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Target to issue, sell, or otherwise cause to become
outstanding any of its capital stock. Except as set forth in Section 4(b)
of the
Disclosure Schedule, there are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Target. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the
Target.
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(c) Title
to Assets.
The
Target has good and marketable title to, or a valid leasehold interest in,
the
properties and assets used by the Target that are either located on its
premises, or shown on the Most Recent Balance Sheet or acquired after the
date
thereof, free of liens and encumbrances except (i)
as
disclosed in Section 4(c) of the Disclosure Schedule, and (ii) properties
and assets disposed of by the Target in the Ordinary Course of Business since
the date of the Most Recent Balance Sheet.
(d) Financial
Statements.
Section
4(d) of the Disclosure Schedule contains the following unaudited financial
statements (collectively, the “Financial
Statements”):
(i)
unaudited balance sheets and statements of income as of and for the fiscal
years
ended May 31, 2005 and May 31, 2006 for Target; and (ii) unaudited balance
sheets and statements of income as of and for the fiscal year ended May 31,
2007
for the
Target (the “Most
Recent Financial Statements”).
The
Financial Statements present fairly the financial condition of the Target
as of
such dates and the results of operations of the Target for such periods and
have
been prepared using a consistent method of accounting. The Updated Balance
Sheet
will, when delivered to the Buyer, present fairly the financial condition
of the
Target as of the Closing Date and will have been prepared using a method
of
accounting consistent with the method used in preparation of the Financial
Statements.
(e) Events
Subsequent to May 31, 2007.
Except
as indicated in Section 4(e) of the Disclosure Schedule, to the Sellers’
Knowledge, since May 31, 2007, no event has occurred, or condition has existed,
that has caused or constituted a Material Adverse Effect. Without limiting
the
generality of the foregoing, since that date:
(i) Target
has not sold, leased, transferred, or assigned any of its assets, tangible
or
intangible, other than in the Ordinary Course of Business;
(ii) Target
has not entered into any agreement, contract, lease, or license (or series
of
related agreements, contracts, leases, and licenses) either (A) involving
more
than $25,000
or (B)
outside the Ordinary Course of Business;
(iii) No
party
(including the Target) has accelerated, terminated, modified, or cancelled
any
agreement, contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) involving more than $25,000
to which
Target is a party or is bound;
(iv) Target
has not imposed any Security Interest upon any of its assets, tangible or
intangible;
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(v) Target
has not made any capital expenditure (or series of related capital expenditures)
either (A) in the amount of more than $25,000 or
(B)
outside the Ordinary Course of Business;
(vi) Target
has not made any capital investment in, any loan to, or any acquisition of
the
securities or assets of, any other Person (or series of related capital
investments, loans, and acquisitions) either (A) in the amount of more than
$25,000,
or
(B)
outside the Ordinary Course of Business;
(vii) Target
has not issued any note, bond, or other debt security or created, incurred,
assumed, or guaranteed any indebtedness for borrowed money or capitalized
lease
obligation in the amount of more than $25,000
in the
aggregate;
(viii) Target
has not delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(ix) Target
has not cancelled, compromised, waived, or released any right or claim (or
series of related rights and claims) either (A) in the amount of more than
$25,000
or (B)
outside the Ordinary Course of Business;
(x) Target
has not granted any license or sublicense of any rights under or with respect
to
any Intellectual Property outside the Ordinary Course of Business;
(xi) There
has
been no change made or authorized in the articles of incorporation or bylaws
of
Target;
(xii) Target
has not issued, sold, or otherwise disposed of any of its capital stock,
or
granted any options, warrants, or other rights to purchase or obtain (including
upon conversion, exchange, or exercise) any of its capital stock;
(xiii) Target
has not declared, set aside, or paid any dividend or made any distribution
with
respect to its capital stock,
or
redeemed, purchased, or otherwise acquired any of its capital stock
for
consideration other than cash;
(xiv) Target
has not experienced any material damage, destruction, or loss (whether or
not
covered by insurance) to its property;
(xv) Other
than Excluded Loans, an accurate and complete list of which is set forth
in
Section 4(e)
of the
Disclosure Schedule, all of which shall be paid in full by Target prior to
the
Closing, Target has not made any loan to, or entered into any other transaction
with, any of its directors, officers, or employees outside the Ordinary Course
of Business;
(xvi) Target
has not entered into any employment contract or collective bargaining agreement,
written or oral, or modified the terms of any such existing contract or
agreement;
-11-
(xvii) Target
has not granted any increase in the base compensation of any of its directors,
officers, or employees outside the Ordinary Course of Business, provided,
however, that Target may pay bonuses to the Sellers prior to the
Closing;
(xviii) Other
than as contemplated by this Agreement, Target has not adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance,
or
other plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any other
Employee Benefit Plan);
(xix) Target
has not made any other change in employment terms for any of its directors,
officers, or employees outside the Ordinary Course of Business;
(xx) Target
has not made or pledged to make any charitable or other capital contribution
outside the Ordinary Course of Business;
(xxi) other
than the transactions contemplated by this Agreement, there has not been
any
other material occurrence, event, incident, action, failure to act, or
transaction outside the Ordinary Course of Business involving Target;
and
(xxii) Target
has not committed to any of the foregoing.
(f) Undisclosed
Liabilities.
Except
as set forth in Section 4(f) of the Disclosure Schedule, Target does not
have
any Liabilities except for (A) Liabilities set forth in the Most Recent Balance
Sheet, and
(B)
Liabilities that have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business.
(g) Legal
Compliance.
Target
has complied with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof),
and no investigation, charge, complaint, claim, has been filed or commenced
against it alleging any failure so to comply. No action, suit, proceeding,
hearing, demand, or notice has been filed or commenced,
and
served,
against
Target alleging any failure so to comply.
(h) Tax
Matters.
Except
as indicated in Section 4(h) of the Disclosure Schedule:
(i) Target
has filed all Tax Returns that it was required to file. All such Tax Returns
were correct and complete in all material respects. All Taxes owed by Target
(whether or not shown on any Tax Return) have been paid or adequate reserves
for
such Taxes have been recorded on the Target’s books and records. Target
currently is not the beneficiary of any extension of time within which to
file
any Tax Return. To the Sellers’ Knowledge, no claim has ever been made by an
authority in a jurisdiction where Target does not file Tax Returns that it
is or
may be subject to taxation by that jurisdiction. There are no Security Interests
on any of the assets of Target that arose in connection with any failure
(or
alleged failure) to pay any Tax.
-12-
(ii) Target
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee or independent
contractor.
(iii) Sellers
do not have Knowledge that any Tax authority will assess any additional Taxes
for any period for which Tax Returns have been filed. There is no dispute
or
claim concerning any Tax Liability of Target either (A) asserted in writing
to
the Target or the Sellers by any Tax authority, or (B) as to which any of
the
Sellers has Knowledge based upon personal contact with any agent of such
authority. The Sellers have delivered to the Buyer correct and complete copies
of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by Target since December 31,
1999.
(iv) Target
has not waived any statute of limitations in respect of Taxes or agreed to
any
extension of time with respect to a Tax assessment or deficiency.
(i) Real
Property. The
Company does not own any real property. Section 4(i) of the Disclosure Schedule
contains a list of all leases for real property to which the Company is a
party,
the square footage leased with respect to each lease and the expiration date
of
each lease. These leases are valid and enforceable and are not in default.
The
Company does not sublease to any other person any of the real property that
the
Company leases. To the Seller’s Knowledge, the real property leased or occupied
by the Company, the improvements located thereon, and the furniture, fixtures
and equipment relating thereto (including plumbing, heating, air conditioning
and electrical systems), conform to any and all applicable health, fire,
safety,
zoning, land use and building laws, ordinances and regulations. There are
no
outstanding contracts made by the Company for any improvements made to the
real
property leased or occupied by the Company that have not been paid for. The
Sellers have delivered to the Buyer correct and complete copies of the leases
listed in Section 4(i) of the Disclosure Schedule (as amended to date). With
respect to each lease listed in Section 4(i) of the Disclosure
Schedule:
(A) to
the
Sellers’ Knowledge, the lease is legal, valid, binding, enforceable, and in full
force and effect, except for the following (the “Exception”):
the
enforceability of the lease (1) may be subject to or limited by bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
relating to or affecting the rights of creditors and (2) is subject to general
principles of equity (including the possibility of unavailability of specific
performance or injunctive relief), regardless of whether considered in a
proceeding in equity or at law;
(B) to
the
Sellers’ Knowledge, the lease will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby, subject to the
Exception;
(C) to
the
Sellers’ Knowledge, no party to the lease is in breach or default, and no event
has occurred which, with notice or lapse of time, would constitute a breach
or
default or permit termination, modification, or acceleration
thereunder;
-13-
(D) no
party
to the lease has repudiated any provision thereof;
(E) there
are
no disputes, oral agreements, or forbearance programs in effect as to the
lease;
and
(F) Target
has not assigned, transferred, conveyed, mortgaged, deeded in trust, or
encumbered any interest in the leasehold.
(j) Intellectual
Property.
Except
as indicated on Section 4(j) of the Disclosure Schedule:
(i) Target
owns or has the right to use pursuant to license, sublicense, agreement,
or
permission all Intellectual Property used in the operation of the businesses
of
the Target as presently conducted. Each item of Intellectual Property owned
or
used by Target immediately prior to the Closing will be owned or available
for
use by the Target on identical terms and conditions immediately subsequent
to
the Closing hereunder. To Sellers’ Knowledge, Target has taken reasonable action
to maintain and protect each item of Intellectual Property that it owns or
uses.
(ii) Target
has not interfered with, infringed upon, misappropriated, or otherwise come
into
conflict with any Intellectual Property rights of third parties. The Sellers
have not received any charge, complaint, claim, demand, or notice alleging
any
such interference, infringement, misappropriation, or violation (including
any
claim that Target must license or refrain from using any Intellectual Property
rights of any third party). To the Sellers’ Knowledge, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of Target.
(iii) Section
4(j)(iii) of the Disclosure Schedule identifies each patent or registration
which has been issued to Target with respect to any of its Intellectual
Property, identifies each pending patent application or application for
registration which Target has made with respect to any of its Intellectual
Property, and identifies each license, agreement, or other permission which
Target has granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). The Sellers have delivered to the
Buyer
correct and complete copies of all such patents, registrations, applications,
licenses, agreements, and permissions (as amended to date). Section 4(j)(iii)
of
the Disclosure Schedule also identifies each trade name or unregistered
trademark used by Target in connection with any of its businesses. With respect
to each item of Intellectual Property required to be identified in Section
4(j)(iii) of the Disclosure Schedule:
(A) with
respect to owned Intellectual Property, the Target possess all right, title,
and
interest in and to the item, free and clear of any Security Interest, license,
or other restriction;
(B) the
item
is not subject to any outstanding injunction, judgment, order, decree, ruling,
or charge;
-14-
(C) no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or
demand is pending or, to the Sellers’ Knowledge, is threatened that challenges
the legality, validity, enforceability, use, or ownership of the item;
and
(D) other
than pursuant to standard software licenses entered into in the Ordinary
Course
of Business, the Target has not agreed to indemnify any Person for or against
any interference, infringement, misappropriation, or other conflict with
respect
to the item.
(iv) Section
4(j)(iv) of the Disclosure Schedule identifies each item of Intellectual
Property that any third party owns and that Target uses pursuant to license,
sublicense, agreement, or permission. The Sellers have delivered to the Buyer
correct and complete copies of all such licenses, sublicenses, agreements,
and
permissions (as amended to date). With respect to each item of Intellectual
Property required to be identified in Section 4(j)(iv) of the Disclosure
Schedule:
(A) The
license, sublicense, agreement, or permission covering the item is legal,
valid,
binding, enforceable against Target, and in full force and effect;
(B) The
license, sublicense, agreement, or permission will continue to be legal,
valid,
binding, enforceable against Target, and in full force and effect on identical
terms following the consummation of the transactions contemplated
hereby;
(C) To
Sellers’ Knowledge, no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which with
notice
or lapse of time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no
party
to the license, sublicense, agreement, or permission has repudiated any
provision thereof;
(E) With
respect to each sublicense, the representations and warranties set forth
in
subsections (A) through (D) above are true and correct with respect to the
underlying license;
(F) the
underlying item of Intellectual Property is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(G) no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or
demand is pending or, to the Sellers’ Knowledge, is threatened that challenges
the legality, validity, or enforceability of the underlying item of Intellectual
Property; and
(H) Target
has not granted any sublicense or similar right with respect to the license,
sublicense, agreement, or permission.
-15-
(v) Target
will not interfere with, infringe upon, misappropriate, or otherwise come
into
conflict with, any Intellectual Property rights of third parties as a result
of
the continued operation of its businesses as presently conducted.
(k) Tangible
Assets.
The
Target owns or leases all machinery, equipment, and other tangible assets
necessary for the conduct of its business as presently conducted. Each such
tangible asset has been maintained in accordance with Target’s normal practices,
and is in good operating condition and repair (subject to normal wear and
tear).
(l) Contracts.
Section
4(l) of the Disclosure Schedule lists the following contracts and other
agreements to which the
Target
is
a party:
(i) any
agreement (or group of related agreements) for the lease of personal property
including without limitation software to or from any Person providing for
lease
payments in excess of $15,000 per annum;
(ii) any
agreement (or group of related agreements) for the purchase or sale of supplies,
products or other personal property, or for the furnishing or receipt of
services, the performance of which will extend over a period of more than
one
year, result in a material loss to the
Target,
or involve consideration in excess of $15,000;
(iii) any
agreement concerning a partnership or joint venture (which terms are understood
not to including any so-called “partnering” arrangements that are referral
relationships);
(iv) any
agreement (or group of related agreements) under which it has created, incurred,
assumed, or guaranteed any indebtedness for borrowed money, or any capitalized
lease obligation, in excess of $15,000 or under which it has imposed a Security
Interest on any of its assets, tangible or intangible;
(v) any
agreement under
which the Target has incurred noncompetition obligations or, outside
of the ordinary course of business, has incurred
confidentiality obligations;
(vi) any
agreement with any of the Sellers and their Affiliates;
(vii) any
profit sharing, stock option, stock purchase, stock appreciation, deferred
compensation, severance, or other plan or arrangement for the benefit of
its
current or former directors, officers, and employees;
(viii) any
collective bargaining agreement;
(ix) any
agreement with
an
employee (whether
full-time
or
part-time)
or
consultant
that
(i)
either provides
for
severance benefits upon
termination or
is not
terminable at-will by the Target,
or
(ii)
provides
for
annual
compensation
of
more
than $100,000;
-16-
(x) any
agreement under which the Target has advanced or loaned any amount to any
of its
directors, officers, and employees outside the Ordinary Course of
Business;
(xi) any
agreement under which the consequences of a default or termination would
reasonably be expected to have a Material Adverse Effect on Target;
or
(xii) any
other
agreement (or group of related agreements) the performance of which involves
consideration in excess of $15,000.
The
Sellers have delivered to the Buyer a correct and complete copy of each written
agreement listed in Section 4(l) of the Disclosure Schedule (as amended to
date), and to Sellers’ Knowledge, a written summary of the terms of all oral
agreements referred to therein. With respect to each such agreement: (A)
the
agreement is legal, valid, binding, enforceable, and in full force and effect,
subject to the Exception; (B) the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby, except for the
Exception; (C) to Sellers’ Knowledge, no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a
breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (D) to Sellers’ Knowledge, no party has repudiated any provision
of the agreement.
(m) Notes
and Accounts Receivable.
All
notes and accounts receivable of the Target are fairly reflected on Target’s
books and records.
(n) Powers
of Attorney.
There
are no outstanding powers of attorney executed on behalf of Target.
(o) Insurance.
Section
4(o) of the Disclosure Schedule lists each insurance policy (including policies
providing property, casualty, liability, and workers’ compensation coverage and
bond and surety arrangements) that Target currently maintains. With respect
to
each such insurance policy: (A) the policy is legal, valid, binding,
enforceable, and in full force and effect; (B) to the Sellers’ Knowledge, the
policy will continue to be legal, valid, binding, enforceable, and in full
force
and effect on identical terms following the consummation of the transactions
contemplated hereby; (C) neither Target nor, to Sellers’ Knowledge, any other
party to the policy is in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred
which,
with notice or the lapse of time, would constitute such a breach or default,
or
permit termination, modification, or acceleration, under the policy; and
(D) to
Sellers’ Knowledge, no party to the policy has repudiated any provision thereof.
(p) Litigation.
Section
4(p) of the Disclosure Schedule sets forth each instance in which Target
(i) is
subject to any outstanding injunction, judgment, order, decree, ruling, or
charge or (ii) is a party or, to the Knowledge of any of the Sellers, has
been
overtly threatened to be made a party to any action, suit, proceeding, hearing,
or investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator.
-17-
(q) Product
Warranty.
To
Sellers’ Knowledge, each product or service developed, sold, leased, licensed,
or delivered by Target has been in material conformity with all applicable
contractual commitments and all express and implied warranties, and Target
does
not have any Liability for replacement or repair thereof or other damages
in
connection therewith, subject only to the reserve for warranty claims, if
any,
set forth in the Most Recent Balance Sheet, as adjusted for the passage of
time
through the Closing Date in the Ordinary Course of Business. No product or
service manufactured, sold, leased, licensed or delivered by Target is subject
to any guaranty, warranty, or other indemnity beyond the applicable terms
and
conditions of sale or lease. The Target has delivered to Buyer complete and
correct copies of the standard terms and conditions of sale or lease or
licensing of or providing of services by or for Target (containing applicable
guaranty, warranty, and indemnity provisions).
(r) Product
Liability.
To
Sellers’ Knowledge, Target does not have any Liability arising out of any injury
to individuals or property as a result of the ownership, possession, or use
or
license of any product manufactured, sold, leased, licensed or delivered
by
Target.
(s) Employees.
Except
(i) for the termination of Xxxxxx X. Xxxx’x employment by Target, effective as
of the Closing, and (ii) as indicated in Section 4(s) of the Disclosure
Schedule, to the Knowledge of the Sellers, no executive, key employee, or
group
of employees has any plans to terminate employment with Target. Target is
not a
party to or bound by any collective bargaining agreement. Target has not
experienced any strikes, grievances, claims of unfair labor practices, or
other
collective bargaining disputes. To Sellers’ Knowledge, Target has not committed
any unfair labor practice. To Sellers’ Knowledge, there is no organizational
effort presently being made or threatened by or on behalf of any labor union
with respect to employees of Target.
(t) Employee
Benefits.
(i) Section
4(t) of the Disclosure Schedule lists each Employee Benefit Plan that Target
maintains, to which Target contributes or has any obligation to contribute,
or
with respect to which Target has any material actual or potential
Liability.
(A)
To
Sellers’ Knowledge, each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) has been maintained, funded and administered
in
accordance with the terms of such Employee Benefit Plan and complies in form
and
in operation in all material respects with the applicable requirements of
ERISA,
the Code, and all other applicable laws, rules and regulations (collectively,
“Benefit Laws”).
(B) All
required reports and descriptions (including annual reports to the applicable
governmental agency, summary annual reports, and summary plan descriptions)
have
been timely filed and/or distributed in accordance with the applicable Benefit
Laws with respect to each such Employee Benefit Plan. The requirements of
COBRA
have been met with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan subject to COBRA.
-18-
(C) All
contributions (including all employer contributions and employee salary
reduction contributions) which are due have been made within the time period
prescribed by ERISA to each such Employee Benefit Plan that is an Employee
Pension Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been made to each such Employee
Pension Benefit Plan or accrued in accordance with the past custom and practice
of the Target. All premiums or other payments for all periods ending on or
before the Closing Date have been paid with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.
(D) Each
such
Employee Benefit Plan which is intended to meet the requirements of a “qualified
plan” under Code §401(a) has received a determination from the Internal Revenue
Service that such Employee Benefit Plan is so qualified, and nothing has
occurred since the date of such determination that could adversely affect
the
qualified status of any such Employee Benefit Plan.
(E) The
market value of assets under each such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer Plan) equals
or
exceeds the present value of all vested and nonvested Liabilities thereunder
determined in accordance with PBGC methods, factors, and assumptions applicable
to an Employee Pension Benefit Plan terminating on the date for
determination.
(F) The
Sellers have delivered to the Buyer correct and complete copies of the plan
documents and summary plan descriptions, the most recent determination letter
received from the Internal Revenue Service, the most recent annual report
(IRS
Form 5500, with all applicable attachments) filed with the applicable
governmental agency if any with respect to all Employee Benefit Plans, and
all
related trust agreements, insurance contracts, and other funding arrangements
which implement each such Employee Benefit Plan.
(ii) With
respect to each Employee Benefit Plan that Target maintains, to which Target
contributes or has any obligation to contribute, or with respect to which
Target
has any material actual or potential Liability:
(A) No
such
Employee Benefit Plan which is an Employee Pension Benefit Plan (other than
any
Multiemployer Plan) has been completely or partially terminated or been the
subject of a “Reportable
Event”.
No
proceeding by the PBGC to terminate any such Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been instituted or, to the
Sellers’ Knowledge, overtly threatened.
-19-
(B) There
have been no “Prohibited
Transactions”
with
respect to any such Employee Benefit Plan. No fiduciary for any such Employee
Benefit Plan has any Liability for breach of fiduciary duty or any other
failure
to act or comply in connection with the administration or investment of the
assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing,
or investigation with respect to the administration or the investment of
the
assets of any such Employee Benefit Plan (other than routine claims for
benefits) is pending or, to the Sellers’ Knowledge, overtly threatened.
(C) Target
has not incurred any Liability to the PBGC (other than with respect to PBGC
premium payments not yet due) or otherwise under Title IV of ERISA (including
any withdrawal liability as defined in ERISA §4201) or under the Code with
respect to any such Employee Benefit Plan which is an Employee Pension Benefit
Plan, or under COBRA with respect to any such Employee Benefit Plan which
is an
Employee Welfare Benefit Plan.
(D) Target
does not contribute to, have any obligation to contribute to, or have any
Liability (including withdrawal liability as defined in ERISA §4201) under or
with respect to any Multiemployer Plan.
(iii) Target
does not maintain, contribute to or have an obligation to contribute to,
or have
any actual or potential Liability with respect to, any Employee Welfare Benefit
Plan providing medical, health, or life insurance or other welfare-type benefits
for current or future retired or terminated employees, their spouses, or
their
dependents (other than in accordance with COBRA).
(u) Guaranties.
Target
is neither a guarantor nor is otherwise liable for any Liability or obligation
(including indebtedness) of any other Person.
(v) Environmental,
Health, and Safety Matters.
To the
Sellers’ Knowledge:
(i) Target
and its respective predecessors and Affiliates have materially complied and
are
in compliance with all Environmental, Health, and Safety
Requirements.
(ii) Without
limiting the generality of the foregoing, Target has obtained and materially
complied with, and is in material compliance with, all permits, licenses
and
other authorizations that are required pursuant to Environmental, Health,
and
Safety Requirements for the occupation of its facilities and the operation
of
its business.
(iii) Neither
the Target nor its respective predecessors or Affiliates has received any
written or oral notice, report or other information regarding any actual
or
alleged violation of Environmental, Health, and Safety Requirements, or any
liabilities or potential liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or corrective
obligations, relating to any of them or its facilities arising under
Environmental, Health, and Safety Requirements.
-20-
(iv) Neither
Target nor its respective predecessors or Affiliates has treated, stored,
disposed of, arranged for or permitted the disposal of, transported, handled,
or
released any substance, including without limitation any hazardous substance,
or
owned or operated any property or facility (and no such property or facility
is
contaminated by any such substance) in a manner that has given or would give
rise to liabilities, including any liability for response costs, corrective
action costs, personal injury, property damage, natural resources damages
or
attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (“CERCLA”), the Solid Waste
Disposal Act, as amended (“SWDA”) or any other Environmental, Health, and Safety
Requirements.
(v) Neither
this Agreement nor the consummation of the transactions contemplated by this
Agreement will result in any obligations for site investigation or cleanup,
or
notification to or consent of government agencies or third parties, pursuant
to
any of the so-called “transaction-triggered” or “responsible property transfer”
Environmental, Health, and Safety Requirements.
(vi) The
Target has not, either expressly or by operation of law, assumed or undertaken
any liability, including without limitation any obligation for corrective
or
remedial action, of any other Person relating to Environmental, Health, and
Safety Requirements.
(vi) No
facts,
events or conditions relating to the past or present facilities, properties
or
operations of Target will prevent, hinder or limit continued compliance with
Environmental, Health, and Safety Requirements, give rise to any investigatory,
remedial or corrective obligations pursuant to Environmental, Health, and
Safety
Requirements, or give rise to any other liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise) pursuant to Environmental, Health,
and
Safety Requirements, including without limitation any relating to onsite
or
offsite releases or threatened releases of hazardous materials, substances
or
wastes, personal injury, property damage or natural resources
damage.
(w) Disclosure.
The
representations and warranties contained in this Section 4 do not contain
any
untrue statement of a material fact. No representation or warranty contained
in
this Section 4 omits to state any material fact necessary in order to make
the
statements therein, in light of the circumstances in which they were made,
not
misleading.
5. Representations
And Warranties Concerning Buyer.
The
Buyer represents and warrants to the Sellers that the statements contained
in
this Section 5 are correct and complete as of the date of this
Agreement.
(a) Organization,
Qualification, and Corporate Power.
The
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware, and is qualified to do business
as a
foreign corporation and in good standing under the laws of the State of
California. The Buyer has full corporate power and authority and all licenses,
permits, and authorizations necessary to carry on the businesses in which
it is
engaged and to own and use the properties owned and used by it. Correct and
complete copies of the Buyer’s certificate of incorporation and bylaws (as
amended to date) are filed as exhibits to the Buyer’s periodic and/or current
reports filed with the U.S. Securities and Exchange Commission (“SEC”).
-21-
(b) Buyer
Stock.
All
shares of Buyer Stock issued to Seller upon the Closing will have been duly
authorized, be validly issued, fully paid and nonassessable, and be free
and
clear of any restrictions on transfer (other than any restrictions under
the
Securities Act and state securities laws).
(c) Capitalization.
The
entire authorized capital stock of the Buyer consists of: (i) 150,000,000
shares of Common Stock, par value $0.01 per share, of which 8,619,400 are
issued
and outstanding, and (ii) 29,795,816 shares of Preferred Stock, par value
$0.01
per share, of which (A) 1,608,612 shares are designated Series A Preferred
Stock, of which 1,605,598
are
issued and outstanding, (B) 1,449,204 shares are designated Series B Preferred
Stock, of which 1,449,204
are
issued and outstanding, (C) 21,738,000 shares of Series C Preferred Stock,
of
which 916,667
are
issued and outstanding, (D) 1,500,000 shares of Series D Convertible Preferred
Stock, of which 1,458,333.60 shares are issued and outstanding, 1,500,000
shares
of Series D-2 Convertible Preferred Stock, none of which is issued or
outstanding, and (E) 2,000,000 shares are undesignated Preferred Stock,
none of which are issued and outstanding. Except as disclosed in any
reports
filed by
the
Buyer with
the
SEC since December 15, 2006,
there
are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts
or
commitments that could require the Buyer to issue, sell, or otherwise cause
to
become outstanding any of its capital stock, and no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights
with
respect to the Buyer.
(d) SEC
Reporting.
The
Buyer is in material compliance with all reporting requirements under the
Securities Act and the Securities Exchange Act. All documents filed by the
Buyer
with the SEC on or after December 15, 2006 are in material compliance with
such
Acts and SEC regulations promulgated thereunder, and do not contain any untrue
statement of a material fact or omit to state any material fact necessary
in
order to make the statements and information contained therein not misleading.
(e) Disclosure.
The
representations and warranties contained in this Section 5 do not contain
any
untrue statement of a material fact. No representation or warranty contained
in
this Section 5 omits
to
state any material fact necessary in order to make the statements therein,
in
light of the circumstances in which they were made, not misleading.
6. Post-Closing
Covenants.
The
Parties agree as follows with respect to the period following the
Closing.
(a) General.
In case
at any time after the Closing any further action is necessary to carry out
the
purposes of this Agreement, each of the Parties will take such further action
(including the execution and delivery of such further instruments and documents)
as any other Party reasonably may request, all at the sole cost and expense
of
the requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 8 below). The Sellers acknowledge and agree that from
and
after the Closing the Buyer will be entitled to possession of all documents,
books, records (including Tax records), agreements, and financial data of
any
sort relating to the Target in Sellers’ possession. Buyer shall provide Sellers
with reasonable access to such records as Sellers may reasonably
require.
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(b) Litigation
Support.
In the
event and for so long as any Party actively is contesting or defending against
any action, suit, proceeding, hearing, investigation, charge, complaint,
claim,
or demand in connection with (i) any transaction contemplated under this
Agreement or (ii) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to
act,
or transaction on or prior to the Closing Date involving Target, each of
the
other Parties will cooperate with such Party and such Party’s counsel in the
contest or defense, make available such Party’s personnel, and provide such
testimony and access to such Party’s books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense
of the
contesting or defending Party (unless the contesting or defending Party is
entitled to indemnification therefor under Section 8 below).
(c) Transition.
For a
period of three years commencing on the Closing, Sellers will not take any
action designed or intended to discourage any lessor, licensor, licensee,
customer, supplier, or other business associate of Target from maintaining
the
same business relationships with the Target after the Closing as it maintained
with the Target prior to the Closing, and Sellers will refer to the Buyer
any
customer inquiries relating to the business of developing and reselling human
resources information systems software, as conducted by the Target as of
the
Closing. Nothing herein is intended to limit or reduce any of Xxxxxx X. Xxxx’x
obligations under the Consulting Agreement.
(d) Confidentiality.
Each of
the Sellers will treat and hold as such all of the Confidential Information,
refrain from using any of the Confidential Information except in connection
with
this Agreement, and deliver promptly to the Buyer or destroy, at the request
and
option of the Buyer, all tangible embodiments (and all copies) of the
Confidential Information which are in his possession. Upon receipt of a written
request by Target or Buyer, Sellers agree to surrender and return to Target
all
documents, records, memoranda, notebooks and similar repositories of
Confidential Information of every character or description. In the event
that
any of the Sellers is requested or required (by oral question or request
for
information or documents in any legal proceeding, interrogatory, subpoena,
civil
investigative demand, or similar process) to disclose any Confidential
Information, that Seller will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective order or
waive
compliance with the provisions of this Section 6(d). If, in the absence of
a
protective order or the receipt of a waiver hereunder, any of the Sellers
is, on
the advice of counsel, compelled to disclose any Confidential Information
to any
tribunal, that Seller may disclose the Confidential Information to the tribunal;
provided,
however,
that
the disclosing Seller shall use his or her reasonable efforts to cooperate
with
any effort by the Buyer to obtain, at the request and expense of the Buyer,
an
order or other assurance that confidential treatment will be accorded to
such
portion of the Confidential Information required to be disclosed as the Buyer
shall designate. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior
to the
time of disclosure, or which becomes generally available to the public other
than by breach by any Seller of his or her obligations under this Section
6(d).
-23-
(e) Non-solicitation.
Commencing on the Closing Date and for a period of three (3) years from the
Closing Date, no Seller shall directly or indirectly, personally or through
others, solicit or attempt to solicit (on the Sellers’ or any of the Sellers’
own behalf or on behalf of any other person or entity) the
employment,
consulting
or independent contractor services of any employee of the Company or Buyer
or
any of the Company’s or Buyer’s affiliates or subsidiaries (solely to the extent
such employee was known to such Seller as of the Closing).
Nothing
in this paragraph is intended to limit or reduce any of
Xxxxxx
X.
Xxxx’x obligations under the
Consulting Agreement.
(f) Non-competition.
The
Sellers agree and covenant that, except as set forth in this Agreement, for
a
period of three (3) years from the Closing Date, they will not directly or
indirectly (whether as a representative, agent, partner, owner, stockholder
of
otherwise), (i) engage in any software
products business
that
is
competitive with the business of developing and reselling human resources
information system software products conducted by the Target as of the Closing,
or (ii) solicit business (with respect to any human resources information
system
software product)
from,
or
market any such product to, any customer or prospective customer of the Target,
the Buyer or any Affiliates of Buyer as of the Closing Date. A “prospective
customer” for purposes of this paragraph means: a potential customer that was
actively negotiating with the Target, the Buyer or any Affiliates of Buyer
on or
within 120 days prior to the Closing Date. Nothing in this paragraph is intended
to limit or reduce any of Xxxxxx X. Xxxx’x obligations under the Consulting
Agreement. Further, the Consulting Agreement shall not reduce, limit or modify
the obligations of Xxxxxx X. Xxxx under Section 6 of this Agreement.
(g) Acknowledgements.
(i) Sellers
hereby acknowledge and agree that (A) Target has expended considerable and
substantial time, effort and capital resources to develop the confidential
information of Target (the “Proprietary
Information”);
(B)
the Proprietary Information is innovative and must receive confidential
treatment to protect Buyer’s competitive position in the market and Buyer’s
proprietary interest therein from irreparable damage and (C) the Proprietary
Information and all physical embodiments or other repositories of the same
shall
be and at all times remain the sole and exclusive property of Target.
(ii) The
parties hereto acknowledge and agree that (A) the covenants contained in
Sections 6(d) through 6(f) are incidental to the sale of the Target’s stock to
Buyer; (B) the covenants contained therein are reasonably necessary to protect
the interest of Buyer in whose favor said covenants are imposed; (C) the
restrictions imposed thereby are not greater than are necessary for the
protection of Target and Buyer in light of the substantial harm that Target
and
Buyer will suffer should there be a breach of any such covenant; (D) the
period
of restriction and extent of restriction contained therein are fair and
reasonable in that Target’s business is national in scope and in that they are
reasonably required for the protection of Target and Buyer; (E) the nature,
kind
and character of the activities the Sellers are prohibited to engage in as
described therein are reasonable and necessary to protect Target and Buyer
and
shall not be interpreted or construed as prohibiting the Sellers from rendering
any other services or performing any other activities not referenced therein,
and (F) the covenants and agreements of the Sellers contained therein have
been
specifically negotiated by the parties and are material inducements to Buyer
to
enter into this Agreement, and, but for such covenants made by the Sellers
herein, Buyer would not have entered into this Agreement.
-24-
(iii) The
Sellers acknowledge and agree that each of the covenants and agreements
contained in Sections 6(d) through 6(f) is made in consequence of and as
a
specific inducement to Buyer to enter into this Agreement and to protect
and
preserve the benefit of this Agreement to Target and Buyer; that each of
the
covenants contained therein is reasonable and necessary to protect and preserve
the benefits to be received by Buyer under this Agreement; irreparable loss
and
damage will be suffered by Target and Buyer should the Sellers breach any
of
such covenants and agreements; each of such covenants and agreements is
separate, distinct and severable not only from the other of such covenants
and
agreements but also from the other and remaining provisions of this Agreement;
and that the unenforceability of any such covenant or agreement shall not
affect
the validity or enforceability of any other such covenant or agreements or
any
other provision or provisions of this Agreement. In the event Target or Buyer
should seek an injunction hereunder, the Seller hereby waives any requirement
that Target or Buyer submit proof of the economic value of any Proprietary
Information.
(iv) If
the
provisions of Sections 6(d) through 6(f) should ever be adjudicated to exceed
the time, geographic or other limitations permitted by applicable law in
any
jurisdiction, then such provisions shall be deemed reformed in such jurisdiction
to the maximum time, geographic or other limitation permitted by applicable
law.
(v) Nothing
contained in this Article 6 shall restrict any Seller from being a less than
five percent (5%) stockholder of any corporation that directly or indirectly
competes with Target, Buyer or any Affiliate of Buyer, provided the stock
of
such competing corporation is publicly held and such Seller is not otherwise
involved as an officer, director, employee, consultant or agent of such
corporation.
(vi)
The
Sellers’ obligations under the Sellers’
covenants and agreements contained
in Section 6(f) are
conditioned upon Buyer’s performance of its obligations under Section 2 within
30 days after written notice of non-performance from Sellers but otherwise
all
of
Sellers’ obligations contained in this Section 6 shall
be
construed as agreements independent of any other agreement between Buyer,
Target
and
Sellers to Buyer. The Buyer’s failure to perform its obligations under Section 2
for 30 days after written notice of non-performance from Sellers to Buyer
shall
constitute a defense to Buyer’s enforcement of Sellers’ covenants and agreements
contained in Section 6(f) ; and otherwise the existence of any other claim
or
cause of action of the Sellers
against
Buyer
or
Target,
whether
predicated on this Agreement or otherwise, shall not constitute a defense
to the
enforcement by Buyer or
Target
of
any of
such covenants and agreements.
(h) Severability.
It is
the parties’ express intention that if a court of competent jurisdiction finds
or holds any provision of Sections 6(d) through 6(f) to be excessively broad
as
to time, duration, geographical scope, activity or subject, such provision
shall
then be construed by limiting or reducing it so as to comport with then
applicable law. In the event any such provision cannot be limited or reduced
so
as to comport with then applicable law, then such provision of Sections 6(d)
through 6(f) shall be severable from all other provisions of Sections 6(d)
through 6(f), and the other provisions of Sections 6(d) through 6(f) shall
continue to be enforceable to the fullest extent allowable.
-25-
(i) Injunctive
Relief.
It is
hereby acknowledged and agreed by the parties that the Sellers’ violation of any
of their covenants in Sections 6(d) through 6(f) would cause damages to the
Company and Buyer that would be difficult or impossible to ascertain or
quantify. Therefore, it is expressly agreed that the Buyer, in addition to
any
other remedies it may have, shall be entitled to seek injunctive relief against
the Sellers in the event of any such breach or threatened breach.
(j) Award
of Fees to Prevailing Party.
In any
court action relating to Sections 6(d) through 6(f), the court may make a
determination regarding which party’s legal position in such matter is the more
substantially correct (the “Prevailing
Party”)
and
require the other party to pay the reasonable legal and other professional
fees
and costs incurred by the Prevailing Party in connection with such action.
7. Items
Delivered at Closing.
(a) Items
Delivered to Buyer.
At
Closing, Sellers shall deliver to Buyer the following:
(i) stock
certificates representing all of the Target Shares, endorsed in blank or
accompanied by duly executed assignment documents;
(ii) all
of
the third party consents specified in Section 3(a)(ii) of the Disclosure
Schedule; provided, however, if any consents have not been obtained, the
Closing
shall not be delayed and Buyer and Sellers will use all reasonable efforts
to
obtain such consents after the Closing;
(iii) counterparts
of the Consulting Agreement,
executed by Xxxxxx X. Xxxx;
(iv) evidence
reasonably satisfactory to the Buyer that the Excluded Loans have been fully
satisfied or terminated;
(v) resignations,
effective as of the Closing, of each director and officer of the
Target;
(vi) Xxxxxx
X.
Xxxx’x resignation from employment with the Company;
(vii) counterparts
of the Registration Rights Agreement,
executed by the Sellers;
and
(viii) counterparts
of the Escrow
Agreement, executed by Sellers.
(b) Items
Delivered to Sellers.
At
Closing, Buyer shall deliver to Sellers the following:
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(i) the
Closing Payment and the Buyer Stock, as specified in Section 2(b)
above;
(ii) counterparts
of the Consulting Agreement, executed by the Buyer; and
(iii) counterparts
of the Registration Rights Agreement, executed by the Buyer.
(iv) counterparts
of the Escrow Agreement, executed by Buyer and Escrow Holder.
(c) Items
Delivered to Xxx Xxxx.
Immediately prior to the Closing, Target shall deliver to Xxxxxx X. Xxxx
payment
in full for all accrued salary, bonuses, unused vacation and other employment
compensation through the day
immediately preceding
the
Closing Date, in each case subject to mandatory payroll taxes and withholdings.
Additionally, Target shall transfer ownership to Xx. Xxxx of the portable
computer workstation regularly used by Xx. Xxxx in performing services for
the
Target prior to the Closing, including without limitation, the laptop computer,
monitor, printer, docking station and all related accessories, peripherals
and
software. For clarification only, Xx. Xxxx owns, and shall be entitled to
retain
from and after the Closing, all of his personal items, such as artwork, books
and awards, notwithstanding that such items are currently located at the
Target’s office.
8. Remedies
for Breaches of This Agreement; Covenants.
(a) Survival
of Representations and Warranties.
All of
the representations and warranties of the Sellers and Target contained in
Sections 4(d), (e), (f), and (g) and Sections 4(i) through 4(w) above shall
survive the Closing hereunder and continue in full force and effect for a
period
of one (1) year thereafter; provided, however, that such representations
and
warranties
shall
survive forever to the extent of a warranty or representation of Sellers
that
any Seller knew was untrue at the time this Agreement was executed by the
Sellers. Buyer’s
representations and warranties contained in Section 5(d) and 5(e) shall survive
the Closing hereunder and continue in full force and effect for a period
of one
(1) year thereafter; provided, however, that any such representation and
warranty shall survive indefinitely to the extent that Buyer knew it was
inaccurate at the date of this Agreement. All
of
the other representations and warranties of the Parties contained in this
Agreement (including the representations and warranties of the Sellers contained
in Sections 4(a), (b), (c) and (h) above) shall survive the Closing and continue
in full force and effect subject to any applicable statutes of
limitations.
-27-
(b) Indemnification
Provisions for Benefit of the Buyer.
(i) In
the
event any of the Sellers breaches any of his or her representations, warranties,
and covenants contained herein (other than the covenants in Section 2(a)
above
and the representations and warranties in Section 3(a) above), and, if there
is
an applicable survival period pursuant to Section 8(a) above, provided that
the
Buyer makes a written claim for indemnification against any of the Sellers
pursuant to Section 8(e) by delivering a Claim Notice within such survival
period, then the Sellers shall jointly and severally indemnify the Buyer
and
Target from and against any Adverse Consequences the Buyer or Target suffers
resulting from, arising out of, or caused by the breach; provided, however,
that
the Sellers shall have no obligation to so indemnify the Buyer and Target
from
and against any Adverse Consequences resulting from, arising out of, or caused
by the breach of any representation or warranty of the Sellers or Target
contained in Sections 4(d), (e), (f), and (g) and Sections 4(i) through 4(w)
above, so long as such breach was not a willful breach or a breach arising
out
of a fraudulent warranty or representation by a Seller or Target (collectively,
the “Limited
Coverage Claims”),
until
Buyer or Target has suffered Adverse Consequences by reason of all such breaches
in excess of a $25,000.00 aggregate
threshold, and then only to the extent that Buyer’s or Target’s Adverse
Consequences from Limited Coverage Claims exceed such threshold.
(ii) In
the
event any of the Sellers or Target breaches any of his, her or its covenants
contained herein or any of his, her or its representations and warranties
in
Section 3(a) above, and, if there is an applicable survival period pursuant
to
Section 8(a) above, provided that the Buyer makes a written claim for
indemnification against any of the Sellers pursuant to Section 8(e) below
by
delivering a Claim Notice within such survival period, then the Sellers shall
indemnify the Buyer and Target from and against any Adverse Consequences
the
Buyer or Target suffers resulting from, arising out of, or caused by the
breach.
(iii) Without
deduction for the $25,000 threshold described in Section 8(b)(i)
above, each Seller agrees to jointly and severally indemnify the Buyer and
Target from and against any Adverse Consequences the Buyer or Target may
suffer
resulting from, arising out of, or caused by (A) any Liability of Target
for any
Taxes of the Target with respect to any Tax year or other time period ending
on
the Closing Date or on any day preceding the Closing Date, (B)
the matters described in Schedule 3(a)(v) of the Disclosure Schedule and
any
claims, liabilities or obligations related thereto or arising thereunder,
or
(C)
the matters described in Schedule 4(f) of the Disclosure Schedule and any
claims
or lawsuits related thereto or arising thereunder (the “Customer
Matters”).
Any
claim by Buyer or Target seeking indemnification from Sellers with respect
to
any of the Customer Matters must be made by such party submitting a Claim
Notice
to Sellers within the two-year period commencing on the date hereof (the
“Claim
Period”),
and
Sellers shall have no obligation to indemnify Buyer or Target with respect
to
any of the Customer Matters as to which a Claim Notice is not submitted to
Sellers by Buyer or Target during the Claim Period. Sellers’ indemnity
obligations shall continue, and shall not terminate at the end of the Claim
Period, with respect to any of the Customer Matters that is the subject of
a
Claim Notice submitted by the Buyer or Target to Sellers during the Claim
Period.
-28-
Buyer
agrees not to initiate communications regarding the Customer Matters with
the
customers involved in the Customer Matters or their representatives. Buyer
shall
promptly provide to Sellers any written communications (or notify Sellers
in
writing regarding any oral communications) received by Target’s management from
such customers or their representatives and shall not respond to such
communications without the prior approval, not to be unreasonably withheld,
delayed or conditioned, by Sellers. Further, Buyer shall notify Sellers promptly
in writing when Buyer becomes aware of any claim asserted against Buyer and/or
the Target with respect to any Customer Matter, and Sellers shall then be
entitled to control any efforts to settle or compromise such claim with the
adverse party (a “Claimant”),
for a
120-day period from such written notice; provided, however, that Sellers
shall
promptly inform Buyer of all oral communications between Sellers and such
Claimant and promptly provide copies to Buyer of all written communications
between Sellers and Claimant. During such period, Sellers shall be entitled
to
settle or compromise such claim with the Claimant if: (i) Sellers obtain a
complete release of Target and/or Buyer, as applicable, from such claim,
in a
form reasonably acceptable to Buyer; (ii) Sellers pay any consideration
payable to the Claimant required by such settlement or compromise; and
(iii) such settlement or compromise does not include any terms that
restrict Target’s or Buyer’s business or impose any performance obligations on
Target or Buyer. During such period, Buyer shall reasonably cooperate with
Sellers’ efforts to settle or compromise such claim, and shall not communicate
with the Claimant, except that Buyer may take any action reasonably necessary
to
defend against such claim or to preserve any rights it may have against Sellers
or claimant or any other person or entity.
(iv) The
right
to indemnification based upon representations, warranties, covenants and
obligations shall not be affected by any examination, inspection, audit or
other
investigation conducted by Buyer with respect to, or any Knowledge acquired
at
any time with respect to, the accuracy or inaccuracy of or compliance with
any
such representation, warranty, covenant or obligation.
Buyer
represents and warrants to the Sellers that it does not have Knowledge of
any
inaccuracy of any representation or warranty of Sellers or the Target set
forth
in this Agreement.
(c) Indemnification
Provisions for Benefit of the Sellers.
(i) In
the
event the Buyer breaches any of its representations, warranties, and covenants
contained herein, then the Buyer agrees to indemnify each of the Sellers
from
and against any Adverse Consequences the Sellers suffer resulting from, arising
out of, or caused by the breach.
(ii) Buyer
agrees to indemnify the Sellers from and against any Adverse Consequences
any
Seller may suffer resulting from, arising out of, or caused by any Liability
of
Target for any Taxes of the Target with respect to any Tax year (or shorter
Tax
period) ending after the Closing Date.
(iii) The
right
to indemnification based upon representations, warranties, covenants and
obligations shall not be affected by any examination, inspection, audit or
other
investigation conducted by the Sellers with respect to, or any Knowledge
acquired at any time with respect to, the accuracy or inaccuracy of or
compliance with any such representation, warranty, covenant or obligation.
Sellers represent and warrant to the Buyer that they do not have Knowledge
of
any inaccuracy of any representation, or warranty of Buyer set forth in this
Agreement.
-29-
(d) Adjustment
to Purchase Price.
All
indemnification payments under this Section 8 shall be deemed adjustments
to the
Purchase Price.
(e) Claim
Notice; Notice of a Disputed Claim.
(i) Any
Party
seeking indemnification hereunder (an “Indemnified
Party”)
shall
deliver to the Party from whom indemnification is sought (the “Indemnifying
Party”)
a
written notice (“Claim
Notice”)
that
the Indemnified Party has suffered Adverse Consequences and providing the
facts
alleged as the basis for such claim and the section or sections of this
Agreement alleged to have been violated and the estimated total dollar amount
of
the Adverse Consequences claimed. In the event that the Indemnifying Party
disputes liability for, or the amount of, the Adverse Consequences set forth
in
the Claim Notice, the Indemnifying Party shall notify the Indemnified Party
in
writing of such dispute (“Notice
of a Disputed Claim”)
and
specify the amount disputed and basis therefor and the amount the Indemnifying
Party believes to be the correct amount, if any, within thirty (30) days
notice
after receipt of the Claim Notice. Failure to give a timely objection hereunder
shall not constitute a waiver of the right to dispute such Claim Notice,
except
if and to the extent that such failure results in Adverse Consequences to
the
Indemnified Party.
(ii) If
a
written Notice of a Disputed Claim is sent pursuant to paragraph (i) above,
the
Indemnified Party and Indemnifying Party shall, during the thirty (30) days
following the date of such delivery, negotiate in good faith to resolve the
Disputed Claim and reach a resolution of the matter on an expedited basis.
If,
during such resolution period, the Parties are unable to reach agreement,
either
Sellers or Buyer may pursue resolution of such Disputed Claim in accordance
with
Section 10(o).
(iii) With
respect to a Claim Notice that relates to a claim by a third party, the
Indemnified Party shall provide such Claim Notice within ten (10) days after
it
becomes aware of the assertion of such a claim, provided that failure to
give
timely notice shall not be a bar to indemnification except if and to the
extent
that such failure is prejudicial to the defense of such claim. The Indemnifying
Party shall have the right to assume the defense of such claim and to settle
or
compromise such claim with the consent of the Indemnified Party, such consent
not to be unreasonably withheld, and provided that no consent shall be required
if the settlement or compromise includes a complete release of the Indemnified
Party by the claimant. The Indemnified Party shall fully cooperate in the
defense of such third party claim, as may be reasonably requested by the
Indemnifying Party.
(f) Limitations
on Seller
Indemnification by
Target.
Except
to the extent of available insurance coverage and provided Buyer consents
to
allow such claim to be tendered to the applicable insurance company in Buyer’s
sole discretion (and with the intent that no insurance coverage will
benefit
any
Seller
with
respect to a breach of
a
warranty, representation or covenant of such
Seller
under
this Agreement), each of the Sellers hereby agrees that he or she will not
make
any claim for indemnification against Target by reason of the fact that he
or
she was a director, officer, employee, or agent of Target
or was
serving at the request of Target
as a
partner, trustee, director, officer, employee, or agent of another entity
(whether such claim is for judgments, damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses, or otherwise and whether such claim
is
pursuant to any statute, charter document, bylaw, agreement, or otherwise)
with
respect to any action, suit, proceeding, complaint, claim, or demand brought
after
the
Closing by
the
Buyer against such Seller pursuant
to this Agreement or
the
Exhibits hereto.
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(g) Limit
on Liability.
Anything
herein notwithstanding, except for (i)
Adverse Consequences
due to
fraud
or
fraudulent or intentional misrepresentation by
Sellers,
(ii)
indemnification
claims
arising under
Section
8(b)(i) regarding the representations set forth in Section 3(a)(iii)
and
Section
4(a), (b), (c) and (h), and
(iii)
indemnification
claims
arising under Section 8(b)(ii)
or Section 8(b)(iii)(A)
or (B), Sellers’
aggregate liability to Buyer under this Section 8 shall
not
exceed $500,000.00.
Anything
herein notwithstanding, except for Adverse
Consequences
due to
fraud or fraudulent or intentional misrepresentation by Sellers, Sellers’
aggregate liability to Buyer under this Section 8 solely with respect to
any
Adverse Consequences suffered by Target or Buyer due to or with respect to
the
Customer Matters shall not exceed $250,000.00 (the “Customer
Cap”);
provided, however, that the Customer Cap shall not reduce Sellers’ obligations
under this Section 8 except as expressly provided for in this subparagraph
with
respect to the Customer Matters.
From
and
after the Closing, except for damages arising out of fraud or fraudulent
or
intentional misrepresentation by
a
Seller, Buyer’s sole right to monetary damages against any Seller for any breach
of any warranty or representation arising under this Agreement shall be under
this Section 8. For
clarification,
Buyer’s
remedies with respect to
a breach
of Seller’s obligation under Section 2 shall not be adversely affected or
restricted by this Section 8(g).
(h)
Right
to Set-Off.
Subject
to and in accordance with the terms of the Escrow Agreement, Buyer
may
assert, in good faith, that it is entitled to set-off against the Deferred
Payment any amount (“Claimed
Amount”)
to
which it asserts,
in good faith, that it is
entitled
under this Section 8.
The
exercise of a right of set-off by Buyer
in
good faith, whether or not ultimately determined to be justified, will not
constitute a breach of Section 8 hereof. Neither the exercise of, nor the
failure to exercise, such right of set-off will constitute an election of
remedies or limit Buyer in any manner in the enforcement of any other remedies
that may be available to Buyer.
9. Tax
Matters.
The
following provisions shall govern the allocation of responsibility as between
Buyer and Sellers for certain Tax matters of Target following the Closing
Date:
(a) Tax
Periods Ending on or Before the Closing Date.
Sellers
shall, at their expense, prepare or cause to be prepared and file or cause
to be
filed all Tax Returns for the Target for all Tax years (or shorter Tax periods)
ending on the Closing Date or on any day preceding the Closing Date. Sellers
shall pay all of Target’s Taxes for such time periods (collectively,
“Pre-Closing
Taxes”),
except for those Tax Liabilities that are included in the determination of
Closing Net Equity as defined in Section 2 above.
Sellers
shall provide a copy of all such filed Tax Returns to Buyer when such returns
are filed. If the Target is assessed any additional Pre-Closing Taxes by
a Tax
authority, Sellers shall either (i) elect, at Sellers’ sole cost, to have Target
contest such assessment, in which case Sellers shall pay all amounts finally
determined to be owing for Pre-Closing Taxes plus penalties and interest,
if
any, upon the conclusion of such contest; or (ii) pay on demand such assessed
Pre-Closing Taxes plus penalties and interest, if any.
-31-
(b) Tax
Periods Ending After the Closing Date.
Buyer
shall, at its expense, prepare or cause to be prepared and file or cause
to be
filed all Tax Returns of the Target for all Tax years (or shorter Tax periods)
ending after the Closing Date. Buyer shall pay or cause to be paid all of
Target’s Taxes for such time periods.
(c) Cooperation
on Tax Matters.
Buyer,
the Target and Sellers shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the filing of Tax Returns
pursuant to this Section 9and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and (upon
the
other Party’s request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and
making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder.
10. Miscellaneous.
(a) Nature
of Certain Obligations.
All of
the representations, warranties and covenants of each of the Sellers in this
Agreement are joint and several obligations.
(b) Press
Releases and Public Announcements.
No
Party shall issue any press release or make any public announcement relating
to
the subject matter of this Agreement (“Press Release”) prior
to
the Closing without the prior written approval of the Buyer and the
Sellers. Sellers
may not issue any Press Release
after the Closing without the prior
approval
of the Buyer,
and
Buyer may not issue any Press Release after the Closing without the prior
approval of the Sellers, in each case, which approval shall not be unreasonably
withheld or conditioned.
(c) No
Third-Party Beneficiaries.
This
Agreement shall not confer any rights or remedies upon any Person other than
the
Parties and their respective successors and permitted assigns.
(d) Entire
Agreement.
This
Agreement (including the exhibits and schedules attached hereto) constitutes
the
entire agreement among the Parties and supersedes any prior understandings,
agreements, or representations by or among the Parties, written or oral,
to the
extent they related in any way to the subject matter hereof.
(e) Succession
and Assignment.
This
Agreement shall be binding upon and inure to the benefit of the Parties named
herein and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of his, her or its rights, interests,
or
obligations hereunder without the prior written approval of the Buyer and
the
Sellers; provided, however, that after the Closing, Buyer may assign this
Agreement and its rights hereunder together with a sale of substantially
all the
assets or business of the Buyer to the assignee, or to the surviving corporation
in a merger, reorganization or any other similar transaction with Buyer,
so long
as (i) the Deferred Payment already has been, or is concurrently with such
assignment, paid in full to Sellers, and
(ii)
such assignee or surviving corporation agrees to assume all obligations of
the
Buyer hereunder.
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(f) Counterparts.
This
Agreement may be executed in one or more counterparts and by facsimile, each
of
which shall be deemed an original but all of which together will constitute
one
and the same instrument.
(g) Headings.
The
section headings contained in this Agreement are inserted for convenience
only
and shall not affect in any way the meaning or interpretation of this
Agreement.
(h) Notices.
All
notices, requests, demands, claims, and other communications hereunder must
be
in writing. Any notice, request, demand, claim, or other communication hereunder
shall be deemed duly given two business days after it is sent by registered
or
certified mail, return receipt requested, postage prepaid, and addressed
to the
intended recipient as set forth below:
If
to the Sellers or the Company prior to the Closing:
|
||
Xxxxxx
X. Xxxx
|
||
X.X.
Xxx 000
|
||
Xxxxxxxxx,
XX 00000-0000
|
||
with
a copy to:
|
Xxxxxx
X. Xxxxxx
|
|
Xxxxxx
Xxxxxx Xxxxx, a Law Corporation
|
||
0000
X. Xxxxxxxxxx Xxxx., Xxxxx 000
|
||
Xxxxxx
Xxxxx, XX 00000-0000
|
||
Fax:
(000) 000-0000
|
||
If
to the Buyer or the Company after the Closing:
|
||
BPO
MANAGEMENT SERVICES, INC.
|
||
Attention:
Xxxxxxx Xxxxx and Xxx Xxxxxxx
|
||
0000
X. Xxxxxxx Xxxxxx, Xxxxx 000
|
||
Xxxxxxx
Xxxxx, XX 00000
|
||
Fax:
(000) 000-0000
|
||
With
a copy to:
|
Xxxx
X. Xxxxxxx, Esq.
|
|
|
Xxxxxxx
& Xxxxxx
|
|
00000
XxxXxxxxx Xxxx., Xxxxx 000
|
||
Xxxxxx,
XX 00000
|
||
Fax:
(000) 000 0000
|
Any
Party
may send any notice, request, demand, claim, or other communication hereunder
to
the intended recipient at the address set forth above using any other means
(including personal delivery, expedited courier, messenger service, telecopy,
telex, ordinary mail, or electronic mail), but no such notice, request, demand,
claim, or other communication shall be deemed to have been duly given unless
and
until it actually is received by the intended recipient. Any Party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties
notice
in the manner herein set forth.
-33-
(i) Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of California, without giving effect to any choice or conflict
of law provision or rule that would cause the application of the laws of
any
jurisdiction.
(j) Amendments
and Waivers.
No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by the Buyer and the Sellers. No waiver by
any
Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior
or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior
or
subsequent such occurrence.
(k) Severability.
Any
term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or enforceability
of
the remaining terms and provisions hereof or the validity or enforceability
of
the offending term or provision in any other situation or in any other
jurisdiction.
(l) Expenses.
Buyer
will bear its costs and expenses (including legal fees and expenses) incurred
in
connection with this Agreement and the transactions contemplated hereby.
Target
and Sellers will bear their respective costs and expenses (including legal
fees
and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby, it being understood that Sellers shall not bear any
responsibility for any such costs or expenses of Target incurred after the
Closing.
(m) Construction.
The
Parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the Parties
and no presumption or burden of proof shall arise favoring or disfavoring
any
Party by virtue of the authorship of any of the provisions of this Agreement.
Any reference to any federal, state, local, or foreign statute or law shall
be
deemed also to refer to all rules and regulations promulgated thereunder,
unless
the context requires otherwise. The word “including” shall mean including
without limitation.
(n) Specific
Performance.
Each of
the Parties acknowledges and agrees that the other Parties would be damaged
irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached.
Accordingly, each of the Parties agrees that the other Parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of
this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court permitted under
Section 10(o) below and having jurisdiction over the Parties and the
matter, in addition to any other remedy to which they may be entitled, at
law or
in equity.
-34-
(o) Submission
to Jurisdiction.
Except
as provided otherwise in the Escrow Agreement, each of the Parties submits
to
the exclusive jurisdiction of any state or federal court sitting in the State
of
California located in Orange County, California, and
San
Francisco County, California, in any action or proceeding arising out of
or
relating to this Agreement, and agrees that any and all claims in respect
of the
action or proceeding may be heard and determined in any such court. Each
Party
also agrees not to bring any action or proceeding arising out of or relating
to
this Agreement in any other court. Each of the Parties waives any defense
of
inconvenient forum to the maintenance of any action or proceeding so brought
and
waives any bond, surety, or other security that might be required of any
other
Party with respect thereto.
SEE
NEXT
PAGE FOR SIGNATURES
-35-
“Buyer”
|
|
BPO
MANAGEMENT SERVICES, INC., a Delaware corporation
|
|
By:
__________________________________________
|
|
Name:
________________________________________
|
|
Title:
_________________________________________
|
|
“Target”
or
“Company”
|
|
HUMAN
RESOURCE MICRO-SYSTEMS, INC.,
a
California corporation
|
|
By:
________________________________________
|
|
Xxxxxx
X. Xxxx, President
|
|
“Sellers”
|
|
________________________________________ | |
Xxxxxx
X. Xxxx, as trustee of the Xxxxxx X. and
Xxxxxxx
X. Xxxx Revocable Trust dated April 24, 2003
|
|
________________________________________ | |
Xxxxxxx
X. Xxxx, as trustee of the Xxxxxx X. and
Xxxxxxx
X. Xxxx Revocable Trust dated April 24, 2003
|
|
-36-
EXHIBIT
LIST
Exhibit
A
- Form of Consulting Agreement
Exhibit
B
- Form of Registration Rights Agreement
Exhibit
C
- Form of Escrow Agreement
-37-